California’s future: landed gentry and transitory renters

The working class in California struggles with high rent until they give up and move out of state, leaving behind the landed gentry.

California housing policies devastate the lower middle class. Anyone who lives in California copes with higher housing costs than nearly everywhere else in the United States. This problem is a boon to landowners and high wage earners, but it’s a bust for lower- and middle-class wage earners who often put 50% of their income toward housing.

Renters who must spend so much of their paycheck on rent fail to save for a down payment, which becomes a vicious circle that sentences most of the working class to indentured servitude to the landed gentry until these workers succumb to the futility and leave the state.

The landed gentry is a largely historical British social class consisting of land owners who derived a livelihood entirely from rental income. California’s landowners, both commercial and residential, embody the reincarnation of the landed gentry of a bygone era. They gain wealth, income and privilege from owning real estate, providing no other productive value.

Like the working classes of Elizabethan England, the working class in California is doomed to rent from the landed gentry, particularly now that most entry level homes cost more than the conforming loan limit. Only the children of privilege possess the necessary 20% down payments on jumbo loans to acquire real estate; thus the down payment barrier serves to perpetuate the system where transitory renters service the landed gentry.

Orange County’s economy is growing, but danger signs are mounting. Jobs are expanding at a healthy clip, but many of the new positions pay poverty-level wages.

Home values are surging, but an extreme shortage of affordable residences is driving young families and working-age adults out of the county. And as business leaders scramble to attract well-paid technology jobs, too few local workers may have the skills to fill them.

Demand in the local economy comes from two sources: the high-paying jobs for the highly skilled, and the low-paying jobs servicing the highly-paid. In short, the economy has executives and executive’s maids.

“The labor market is in the midst of disruptive change like never before,” warned the Orange County Workforce Indicators Report. …

“They say demographics are destiny,” Walrod told the conference. “It is imperative that everyone in this room understand the consequences of pending demographic shifts.”

The national trend of aging baby boomers moving into retirement, he said, is “magnified and exacerbated” in Orange County, where the over-65 population is on track to nearly double by 2060 to “a staggering 26.2 percent.”

The over-65 group will be composed entirely of homeowners. Nobody can retire and afford to pay Orange County rent.

Even those who think they are homeowners come to the unsettling conclusion that they can’t quit their jobs until that massive mortgage is paid off. They are just servants to a different master: their lender.

Unlike California as a whole, every age cohort other than seniors is shrinking in Orange County, where the median age has risen from 33 to 38 since 2000.

Most worrying, the prime working-age population – 25-to 64-year-olds – is expected to dip by 1 percent by 2060, even as overall population grows by 15 percent.

The workers are all transitory. Orange County, like the rest of Coastal California, attracts people from the outside with the lure of high pay, but with our shortage of real estate, these workers spend most of their money on rent, which benefits the landed gentry. And with no realistic path to homeownership, each of these workers realizes in time that the high pay isn’t getting them anywhere, so they leave Coastal California in search of a place to call home.

By contrast, working-age groups in Riverside and San Bernardino counties are on track to grow by 61 percent and 47 percent, respectively.

Apparently, many of these workers will head inland.

“We are losing not only our 25 to 34 year-old workforce – millennials – but also losing K-12 and the college-age cohort as well,” Walrod said.

The trend, he warned, “could devastate O.C.’s pool of workers, creating talent gaps as large swaths of the workforce retires, leaving open positions that will likely go unfilled.”

When housing is limited, renters compete fiercely for available supply. If these workers earn more money, many of these people will put most of this money toward rent on what they hope is a nicer place. Of course, the cumulative effect is a wash as most renters will need to pay more just to stay in the place they already have because of all the people below them also trying to move up.

In the end, most of the extra money provided to working-class renters in a supply-constrained housing market will end up in the hands of their landlord.

The prospects for aspiring homeowners is no less dire. The shortage of available housing to own also causes them to spend more on housing, so for homeowners with mortgages, the pay raises end up in the hand of their lenders.

The principal cause of the demographic disconnect isn’t a mystery.

A severe housing shortage has turned Orange County into one of the most expensive markets in the nation, with median home prices exceeding $650,000 and average monthly rents at about $1,900. Higher-density developments that could alleviate the shortfall are often opposed by current homeowners.

The landed gentry use the political process to protect their advantage.

Rising values are “good news for current homeowners, but bad news for those looking to afford to relocate to O.C. or to buy a house and stay here, especially millennials,” Walrod said.

As a result, he added, “domestic outmigration has been accelerating.”

The report projects that “new job creation will significantly outpace projected new housing units over the next two and half decades, resulting in a housing shortfall that will grow from a current reading of 50,000-62,000 units to a staggering 100,000 units by 2040. …

This phenomenon is entirely due to nimbys opposing all new home developments.

Low-income families are doubling up in units designed for one family, Bunyan said, while entry-level workers can’t afford to move out of their parents’ homes. …

Millennials living at their parent’s homes is a financial necessity in Coastal California.

In the past three years, categories adding the most positions in Orange County have been food preparation and serving workers, personal-care aides, laborers and movers, general managers and waiters and waitresses.

“We are in a structural change like we have never seen before,” Walrod told the conference, showing a slide titled “The Demise of the Routine, The Rise of the Non-Routine Work.” “Routine” jobs have plummeted since 2001. …